In several US states, new water quality standards are setting clear targets and demanding accountability for pollution cleanup. Opponents, however, have filed legal challenges to two of the more ambitious efforts: one in Florida and the other in the Chesapeake Bay region. The outcome could spur water quality trading across the United States – or stifle it.

In several US states, new water quality standards are setting clear targets and demanding accountability for pollution cleanup. Opponents, however, have filed legal challenges to two of the more ambitious efforts: one in Florida and the other in the Chesapeake Bay region. The outcome could spur water quality trading across the United States – or stifle it.

“A venti twenty-ounce latte holds approximately one pound of nitrogen,” he said. “The cost to remove that much nitrogen can be six dollars – or it can be six thousand dollars – depending on if it is removed in a waste water system or an urban stormwater retrofit.”

Domenech’s example is a perfect illustration of the complexities that regulators face in restoring the Chesapeake Bay watershed, which spans 64,000 square miles over five states and the District of Columbia. The nitrogen, phosphorus, and sediment pollution plaguing the Bay come from innumerable sources: urban storm-water runoff, fertilized croplands, sewage plants, and logged forests, among others.

Cleanup requires many strategies in many places, and one market-based strategy gaining popularity is the use of quantitative water quality standards as de-facto pollution caps in cap-and-trade water quality trading programs.

Both the State of Florida and the Chesapeake Bay region are in the process of developing programs that do just that, and both may very well serve as test models for new watershed protection efforts across the country. The federal Environmental Protection Agency (EPA), however, is facing lawsuits in both states by groups rankled over the agency’s efforts to step up restoration in impaired waterbodies.

The outcomes of these cases could have important ramifications for using water quality markets and other incentive-based mechanisms for cleanup. EPA’s demands for greater accountability from states and local communities could catalyze market-based approaches – or stifle them, if implementation plans aiming for meticulousness forget about flexibility.

Chesapeake Bay

On January 12th, the Pennsylvania Farm Bureau, backed by the national American Farm Bureau, filed suit in a federal court in Harrisburg seeking to block the new Chesapeake Bay program, which aims to establish caps based on so-called “total maximum daily loads” (TMDLs), which are the amount of pollution or other changes that a water body can absorb without violating state water quality standards.

In its lawsuit, the Farm Bureau makes a number of arguments, the most important being that the Clean Water Act (CWA) intended TMDLs to be informational tools only, and that the EPA overstepped its authority by taking charge of states’ planning processes to implement a TMDL cap.

“How, when, and indeed whether a TMDL is ultimately achieved…is placed exclusively in the hands of each state,” says the official complaint. “EPA has no authority to cross the line between identifying total pollutant levels necessary to meet water quality standards and specifying implementation requirements.”

At the heart of the Farm Bureau’s objections is a novel ‘accountability framework’ for the Chesapeake TMDL, developed in response to Executive Order 13508, signed by President Obama in May of 2009, which directs federal agencies to redouble efforts to restore the Chesapeake Bay.

After decades of dangling carrots to encourage voluntary cleanup actions failed to halt the Bay’s decay, EPA is now wielding some sticks: in addition to reviewing (and in some cases, initially rejecting) states’ Watershed Implementation Plans (WIPs), which set out strategies and timelines for cleanup, EPA is reserving the right to use ‘backstop measures’ if WIPs aren’t fully implemented.

These include expanding the National Pollutant Discharge Elimination System (NPDES) to cover non-point sources such as storm-water dischargers and animal feeding operations, which are not currently covered under the Clean Water Act. That particular threat has further infuriated the Farm Bureau, which sees it as another overreach of authority. EPA has also ordered states to set biennial milestones, with heavy consequences for those states that fail to meet them, including withholding funding and NPDES permit approval.

These actions, the Farm Bureau lawsuit claims, amount to an encroachment on states’ rights. EPA counters that it has acted within its authority. At a January 10th conference, EPA’s Jim Curtin conceded that the agency could not legally require WIPs in order to achieve a TMDL.

“We have in this TMDL tried very, very carefully to respect that dichotomy,” he said, suggesting instead that both are part of the larger restoration process. Curtin also noted that the Clean Water Act doesn’t clearly spell out EPA’s authority when it comes to regulation across a multi-state watershed, but that courts in the past have supported federal efforts to establish multistate pollution caps.

The Farm Bureau’s complaint also takes issue with the models used to set the TMDL, questioning their “scientific validity”, and arguing that opportunities for public consultation on the TMDL were inadequate.

Florida

Meanwhile, in Florida, EPA has become the target of lawsuits over its 2010 Final Rule, which sets quantitative nutrient limits on the entire state’s lakes, rivers, streams, and springs. Currently, nutrient criteria are simply ‘narrative,’ requiring that “in no case shall nutrient concentrations of a body of water be altered so as to cause an imbalance in natural populations of aquatic flora or fauna.” Numeric limits are only introduced on a site-specific basis. The new statewide numeric ruling, which takes effect in 2012, is the product of a consent decree the EPA signed to settle a lawsuit filed by environmental groups in 2008.

Among the parties currently suing EPA over the new numeric standards: the State of Florida, the Florida Agricultural Commissioner, the Florida League of Cities, the Florida Stormwater Association, and numerous municipal and county groups, as well as members of the fertilizer and mining industries, at last count.

The complaints share a similar argument – and one that echoes debates up in the Chesapeake Bay. The Final Rule is a “ federal mandate” and an intrusion into state regulatory affairs, which had received EPA’s approval until the environmental group lawsuit, plaintiffs say. Most also question the scientific basis of the EPA numbers and argue that implementing numeric nutrient limits for the entire state will inflict high costs on businesses, citizens, and the public sector.

Exactly how expensive the new rule will be is a fraught question; EPA estimates the new standards will cost between $135.5 and $206.1 million, or three to five dollars a month for the average Florida household. A study commissioned by the Florida Stormwater Association puts costs in the billions.

EPA maintains that state-wide numeric nutrient criteria will actually help streamline watershed management planning; under the current approach, local planners have to spend time and money determining what quantitative targets meet the narrative criteria.

In the suit filed by the state, the EPA is also accused of initiating the Final Rule simply to resolve the environmental group lawsuit, and to preempt similar lawsuits in other states.

What’s at Stake

A March 16th memo circulated to EPA regional administrators suggests that the agency will push all the states to develop numeric nutrient criteria, though EPA Administrator Lisa Jackson, speaking before a House panel on March 10th, insisted that EPA had no plans to impose them, as was done in Florida.

On the other hand, the Chesapeake TMDL is publicly expected to be a model for other multi-state restoration strategies, including in the Mississippi River Basin, the Gulf of Mexico, and the Great Lakes. Executive Order 13508 calls on the EPA to develop pollution-control strategies in the Chesapeake that “can be replicated in efforts to protect other bodies of water.”

In this sense, there’s much more riding on the case than just the restoration of the Chesapeake Bay watershed, and the EPA and the Farm Bureau are keenly aware of this.

The Farm Bureau’s strategy could very well backfire, says Brent Fewell, vice president of environmental compliance at United Water and former principal deputy assistant administrator at EPA’s Office of Water.

“I think the Farm Bureau has legitimate concerns,” says Fewell. “But even if the lawsuit is successful, I think that the consequences of that will be the EPA making it even more difficult for states and local communities to decide how to achieve their overall load allocations. EPA is very creative and they’re going to find other ways to get the same results. I think it would turn out to be more costly to agriculture in the long run.”

Making Non-Point Sources Part of the Solution

It seems clear that EPA intends to put more pressure on non-point sources, particularly animal feeding operations and stormwater dischargers. Traditionally, these polluters haven’t fallen under EPA’s purview because so-called “non-point sources” such as farms, septic systems and new development (whose pollution washes into a watershed over a diffuse area as opposed to from a single point) aren’t regulated under the Clean Water Act’s discharge permitting system. As a result, they are responsible for an outsized share of water quality pollution in both the Chesapeake Bay area and in Florida.

But is requiring that states set very prescriptive loading allocations the best way to demand more of non-point sources?

“Use of crop inputs is declining,” he said. “No-till farming has reduced soil erosion and resulted in more carbon being stored in the soil. Nitrogen use efficiency has consistently improved.”

In February, the Natural Resources Conservation Service published a study assessing the impacts of conservation practices on cropland and found that a full 96 percent of cropland in the Chesapeake Bay watershed has implemented at least conservation tillage or erosion control structural practices (like buffers or terracing), though there is much room for improvement in nutrient management.

Beth McGee, a senior scientist for the Chesapeake Bay Foundation, points to high participation in conservation practices as a sign that the TMDL’s potential impacts on farmers have been greatly exaggerated by the Farm Bureau. Many farmers, she says, are already doing their part to protect water quality, and the TMDL wouldn’t add to their obligations.

“The American Farm Bureau is seeding fear,” McGee says. “It’s not quite clear yet to some Chesapeake farmers what they need to do to meet the pollution diet. Now they’re hearing from their national leaders that this is going to put them out of business and EPA’s going to be on their farm. It’s a fallacy.

“You can have farms that are making a profit and are compatible with clean water.”

Agriculture’s contribution to Bay cleanup could be huge: cutting pollutionAnd achieving pollution reductions from non-point sources can be is usually much cheaper than installing installing more end-of-pipe technology at point-sources mitigation technologies.

Achieving pollution reductions from non-point sources can be much cheaper than installing more end-of-pipe point-source mitigation technologies.

“The District of Columbia is expected by EPA to spend over three billion dollars to reduce stormwater discharges,” says Fewell. “Three billion dollars for a jurisdiction that represents two percent of phosphorus and nitrogen contributions to the Bay. On the other hand, if the district was allowed to use a few hundred million dollars to offset somewhere else in the watershed, by paying for conservation practices on farmland, we’d see a heck of a lot more reduction in nutrients and improvements to the Bay.

“It makes no sense. When you’ve got EPA dictating to the District of Columbia to reduce stormwater discharges at two billion dollars, that’s a lost opportunity.”

What This Means for Markets

A TMDL or state numeric nutrient criteria by themselves simply set water quality targets. Markets for nutrient credits usually rely on these targets to drive trade.

Markets, however, require regulatory flexibility about where and how mitigation happens. As the Chesapeake and Florida debates illustrate, the key in implementing water quality standards is finding that sweet spot between holding states and local communities accountable for their share of the cleanup effort and giving them the flexibility to find the most cost-effective way to cut pollution.

“It is important to emphasize that [Virginia’s watershed implementation] plan is being developed during the worst economy in generations,” Domenech pointed out last week.

“I think the biggest strategic mistake that EPA has made is micromanaging the states and how they achieve their load reductions,” says Newell. “EPA has every right to say, ‘In two years we expect you to achieve this amount of progress and if you don’t, these are the consequences. But in the interim, states should figure out how to do it. And trading and other market-based approaches really are the most effective tool to help states do so.”

What’s Next?

In both the Chesapeake Bay and Florida, the cases are expected to be tied up in the courts for a few years. In the meantime, restoration efforts roll on. State phase II WIPs, with detailed plans for allocating nutrient and sediment load reductions among sources, are due by June 1st of this year, and it remains to be seen how much scope exists for market mechanisms in these plans. The Final Rule in Florida is expected to take effect in April 2012.

What appears clear is that restoration is moving forward in the Chesapeake and in Florida. The real question is how much it’s going to cost, who gets to decide how it happens, and whether EPA’s strategies will turn out to be workable models for cleanup efforts across the country.